Advanced Emissions Solutions, Inc. (NASDAQ:ADES) (the "Company" or
"ADES") today filed its Quarterly Report on Form 10-Q and reported
financial results for the second quarter ended June 30, 2017,
including information about its equity investment in Tinuum Group,
LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services")
(collectively "Tinuum"), of which ADES owns 42.5% and 50%,
respectively.
Tinuum & Refined Coal (“RC”)
Highlights
- Tinuum distributions to ADES were $10.5 million during the
second quarter of 2017, and $25.2 million year to date, up from
$20.8 million in the first half of 2016
- Royalty earnings from Tinuum were $1.9 million for the second
quarter of 2017, a 179% increase from the same quarter in 2016
- Tinuum invested tonnage was 10.5 million during the second
quarter of 2017 compared to 9.4 million tons during the second
quarter of 2016
- Based on invested RC facilities as of June 30, 2017,
expected future cash flows at ADES are between $225 million and
$250 million through the end of 2021
- During July 2017, completed the sale to a third-party investor
of 49.9% of an RC project at a coal burning power plant that has
historically burned in excess of 3.5 million tons of coal per year
and is royalty bearing, increasing the number of invested
facilities to 15.
ADES Consolidated
Highlights
- Recognized consolidated revenue of $25.5 million for the
quarter, up 184% from the prior year's comparable quarter and
primarily related to completion of historical equipment systems
during the quarter
- Reduced general and administrative operating costs (i.e.,
indirect operating costs) for the quarter by 48% to $4.0 million
from $7.8 million for the comparable quarter in 2016
- Continued to validate and expand the chemicals business, which
had $0.8 million in revenue during the quarter, an increase of 38%
from the comparable quarter in 2016
- Achieved consolidated net income of $6.4 million for the
quarter
- Increased non-restricted cash balance to $26.4 million as of
quarter-end, which is an increase of $13.2 million since
December 31, 2016, even after stock repurchase
- Executed steps to return value to stockholders through balanced
capital allocation approach, including repurchase of $12.9 million
of common shares and declaration of Company’s first quarterly
dividend of $0.25 per share, resulting in total return to
stockholders of $18.2 million
- Announced third quarter common stock dividend of $0.25 per
share of approximately $5.3 million, payable on September 7,
2017
L. Heath Sampson, President and CEO of ADES
commented, “Our second quarter was marked by strong equipment sales
and another strong quarter of distributions from Tinuum Group, both
of which were in line with our expectations. In our Emissions
Control segment, we continued to validate and invest in our
chemicals business. Although the sales cycle and end-markets have
proven to be competitive, we remain confident in our product
offering based on a rapidly expanding pipeline, and reaffirm our
target of achieving the previously outlined 20-40% share of the
$100 million market opportunity within the next few years.
Additionally, the quarter was highlighted by our shareholder return
initiatives, including the successful tender offer as well as the
announcement and initiation of a recurring quarterly dividend
program. These two initiatives culminated in returning of over $18
million over the last few months, and returning value to our
stockholders will remain a priority moving forward.”
Sampson concluded, “We are also excited Tinuum
closed on an additional minority ownership in an RC project last
week, which will provide us future tax credits given our shared
ownership in the project through Tinuum, expected increase in
future Tinuum distributions, and providing evidence of movement
within the RC market. Our team and Tinuum remain focused on
identifying additional tax-equity investors to monetize the
remaining RC facilities. The political and tax environment, though
tedious, are more favorable than last year, and the momentum behind
our tax-equity investor pipeline has grown substantially more
robust in recent months. We continue to negotiate with both current
and prospective tax-equity investors capable of investing in either
one or multiple facilities and the cadence of these negotiations
has become more favorable. As a result, we fully expect for
those discussions to progress throughout the back half of the
year.”
Second quarter revenues and costs of revenues
were $25.5 million and $23.3 million, respectively, compared with
$9.0 million and $5.8 million in the second quarter of 2016. The
increase in revenues was primarily due to the completion of
equipment systems and stronger chemical sales. Second quarter other
operating expenses were $4.0 million, a decrease of 48% compared to
$7.8 million in the second quarter of 2016. The decrease was
largely driven by substantially lower legal and professional fees.
Rent and occupancy and depreciation and amortization were also
substantially lower from the comparable period in 2016, driven by
the Company’s recent headquarters move, which led to reduced rent
and fixed assets.
Second quarter earnings from equity method
investments were $10.2 million, compared to $13.8 million for the
second quarter of 2016. The decrease was driven by the timing of RC
distributions received during the first and second quarters. Tinuum
distributions to ADES for the first half of 2017 were $25.2
million, up from $20.8 million for the comparable period in
2016.
Second quarter royalty earnings from Tinuum were
$1.9 million, an increase of 179% compared to $0.7 million in the
second quarter of 2016, due to increased earnings from the
respective RC facilities. Second quarter expenses related to
the RC business were $0.6 million, a decrease of 60% compared to
2016 primarily due to lower interest expense. RC segment operating
income was $11.1 million, compared to $14.2 million in the second
quarter of 2016. Revenues from the chemicals business were $0.8
million during the second quarter, a 38% increase compared to $0.6
million for the comparable quarter in 2016.
Second quarter consolidated interest expense was
$0.6 million, compared to $1.6 million in the second quarter of
2016. Second quarter income tax expense was $3.6 million,
compared to $0.1 million in the second quarter of 2016.
Consolidated net income for the second quarter
was $6.4 million, primarily driven by equity earnings from the RC
business and significantly reduced operating expenses in the EC
business, as well as corporate expenses.
As of June 30, 2017, the Company had cash
and cash equivalents of $26.4 million, an increase of 100% compared
to $13.2 million as of December 31, 2016, due primarily to
Tinuum distributions and royalties and the release of restricted
cash. The Company has released $10.7 million in restricted cash
since December 31, 2016.
Dividend
Today, the Board of Directors declared a
quarterly cash dividend of $0.25 per share of common stock. The
dividend is payable on September 7, 2017 to stockholders of record
at the close of business on August 21, 2017.
Conference Call and Webcast
Information
The Company has scheduled a conference call to
begin at 9:00 a.m. Eastern Time on Tuesday, August 8,
2017. The conference call will be webcast live via the
Investor section of ADES's website at
www.advancedemissionssolutions.com. Interested parties may also
participate in the call by dialing (833) 227-5845 (Domestic) or
(647) 689-4072 (International) conference ID 57992820. A
supplemental investor presentation will be available on the
Company's investor relations website prior to the start of the
conference call.
About Advanced Emissions Solutions,
Inc.Advanced Emissions Solutions, Inc. serves as the
holding entity for a family of companies that provide emissions
solutions to customers in the power generation and other
industries.
ADA-ES, Inc. (“ADA”) is a wholly-owned subsidiary of Advanced
Emissions Solutions, Inc. (“ADES”) that provides emissions control
solutions for coal-fired power generation and industrial boiler
industries. With more than 25 years of experience developing
advanced mercury control solutions, ADA delivers proprietary
environmental technologies, equipment and specialty chemicals that
enable coal-fueled boilers to meet emissions regulations. These
solutions enhance existing air pollution control equipment,
maximizing capacity and improving operating efficiencies. Our
track record includes securing more than 30 US patents for
emissions control technology and systems and selling the most
activated carbon injection systems for power plant mercury control
in North America. For more information on ADA, and its products and
services, visit www.adaes.com.
Tinuum Group, LLC is a 42.5% owned joint venture by ADA that
provides ADA’s patented Refined Coal CyClean™ technology to enhance
combustion of and reduce emissions of NOx and mercury from coal in
cyclone boilers and ADA’s patented M-45™ and patent pending
M-45-PC™ technologies for Circulating Fluidized boilers and
Pulverized Coal boilers respectively. www.tinuumgroup.com
Caution on Forward-Looking StatementsThis press
release contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which provides
a “safe harbor” for such statements in certain circumstances. The
forward-looking statements include projection on future RC cash
flows, targets for capturing market share and expectations about
closing additional facilities. These forward-looking statements
involve risks and uncertainties. Actual events or results could
differ materially from those discussed in the forward-looking
statements as a result of various factors including, but not
limited to, timing of new and pending regulations and any legal
challenges to or extensions of compliance dates of them; the US
government’s failure to promulgate regulations or appropriate funds
that benefit our business; changes in laws and regulations,
accounting rules, prices, economic conditions and market demand;
impact of competition; availability, cost of and demand for
alternative energy sources and other technologies; technical, start
up and operational difficulties; failure of the RC facilities to
produce RC; termination of or amendments to the contracts for sale
or lease of RC facilities; decreases in the production of RC;
inability to commercialize our technologies on favorable terms; our
inability to ramp up our operations to effectively address recent
and expected growth in our business and achieve expected market
share; loss of key personnel; potential claims from any terminated
employees, customers or vendors; failure to satisfy performance
guarantees; availability of materials and equipment for our
businesses; intellectual property infringement claims from third
parties; as well as other factors relating to our business, as
described in our filings with the SEC, with particular emphasis on
the risk factor disclosures contained in those filings. You are
cautioned not to place undue reliance on the forward-looking
statements and to consult filings we have made and will make with
the SEC for additional discussion concerning risks and
uncertainties that may apply to our business and the ownership of
our securities. The forward-looking statements speak only as to the
date of this press release.
TABLE 1 |
Advanced Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(Unaudited) |
|
|
As of |
(in
thousands, except share data) |
|
June 30, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
26,373 |
|
|
$ |
13,208 |
|
Restricted cash |
|
3,000 |
|
|
13,736 |
|
Receivables, net |
|
1,958 |
|
|
8,648 |
|
Receivables, related parties, net |
|
1,866 |
|
|
1,934 |
|
Costs in
excess of billings on uncompleted contracts |
|
— |
|
|
25 |
|
Prepaid
expenses and other assets |
|
1,736 |
|
|
1,357 |
|
Total
current assets |
|
34,933 |
|
|
38,908 |
|
Property and equipment,
net of accumulated depreciation of $1,541 and $2,920,
respectively |
|
468 |
|
|
735 |
|
Cost method
investment |
|
1,016 |
|
|
1,016 |
|
Equity method
investments |
|
2,739 |
|
|
3,959 |
|
Deferred tax
assets |
|
53,290 |
|
|
61,396 |
|
Other long-term
assets |
|
1,711 |
|
|
1,282 |
|
Total
Assets |
|
$ |
94,157 |
|
|
$ |
107,296 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
1,617 |
|
|
$ |
1,920 |
|
Accrued
payroll and related liabilities |
|
1,135 |
|
|
2,121 |
|
Billings
in excess of costs on uncompleted contracts |
|
1,884 |
|
|
4,947 |
|
Legal
settlements and accruals |
|
4,327 |
|
|
10,706 |
|
Other
current liabilities |
|
8,208 |
|
|
4,017 |
|
Total
current liabilities |
|
17,171 |
|
|
23,711 |
|
Legal settlements and
accruals, long-term |
|
1,076 |
|
|
5,382 |
|
Other long-term
liabilities |
|
2,234 |
|
|
2,038 |
|
Total
Liabilities |
|
20,481 |
|
|
31,131 |
|
Commitments and
contingencies (Note 6) |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Preferred
stock: par value of $.001 per share, 50,000,000 shares authorized,
none outstanding |
|
— |
|
|
— |
|
Common
stock: par value of $.001 per share, 100,000,000 shares authorized,
22,438,617 and 22,322,022 shares issued, and 21,076,726 and
22,024,675 shares outstanding at June 30, 2017 and
December 31, 2016, respectively |
|
22 |
|
|
22 |
|
Treasury
stock, at cost: 1,370,891 and -0- shares as of June 30, 2017 and
December 31, 2016, respectively |
|
(12,973 |
) |
|
— |
|
Additional paid-in capital |
|
114,882 |
|
|
119,494 |
|
Accumulated deficit |
|
(28,255 |
) |
|
(43,351 |
) |
Total
stockholders’ equity |
|
73,676 |
|
|
76,165 |
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
94,157 |
|
|
$ |
107,296 |
|
TABLE 2 |
Advanced Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Statements of
Operations(Unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(in
thousands, except per share data) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues: |
|
|
|
|
|
|
|
|
Equipment
sales |
|
$ |
24,619 |
|
|
$ |
8,213 |
|
|
$ |
29,727 |
|
|
$ |
29,919 |
|
Chemicals |
|
846 |
|
|
613 |
|
|
3,127 |
|
|
1,047 |
|
Consulting services and other |
|
— |
|
|
125 |
|
|
— |
|
|
320 |
|
Total revenues |
|
25,465 |
|
|
8,951 |
|
|
32,854 |
|
|
31,286 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Equipment
sales cost of revenue, exclusive of depreciation and
amortization |
|
22,650 |
|
|
5,437 |
|
|
26,793 |
|
|
22,470 |
|
Chemicals
cost of revenue, exclusive of depreciation and amortization |
|
645 |
|
|
255 |
|
|
2,403 |
|
|
396 |
|
Consulting services and other cost of revenue, exclusive of
depreciation and amortization |
|
— |
|
|
77 |
|
|
— |
|
|
212 |
|
Payroll
and benefits |
|
2,033 |
|
|
3,956 |
|
|
4,215 |
|
|
7,759 |
|
Rent and
occupancy |
|
255 |
|
|
632 |
|
|
300 |
|
|
1,026 |
|
Legal and
professional fees |
|
1,219 |
|
|
1,982 |
|
|
2,254 |
|
|
4,965 |
|
General
and administrative |
|
809 |
|
|
1,346 |
|
|
2,072 |
|
|
2,092 |
|
Research
and development, net |
|
(414 |
) |
|
(345 |
) |
|
(222 |
) |
|
(143 |
) |
Depreciation and amortization |
|
118 |
|
|
223 |
|
|
600 |
|
|
454 |
|
Total operating
expenses |
|
27,315 |
|
|
13,563 |
|
|
38,415 |
|
|
39,231 |
|
Operating loss |
|
(1,850 |
) |
|
(4,612 |
) |
|
(5,561 |
) |
|
(7,945 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
|
Earnings
from equity method investments |
|
10,155 |
|
|
13,754 |
|
|
23,969 |
|
|
19,331 |
|
Royalties, related party |
|
1,866 |
|
|
669 |
|
|
3,621 |
|
|
1,859 |
|
Interest
expense |
|
(628 |
) |
|
(1,573 |
) |
|
(1,321 |
) |
|
(3,537 |
) |
Revision
in estimated royalty indemnity liability |
|
500 |
|
|
— |
|
|
3,400 |
|
|
— |
|
Other |
|
7 |
|
|
(279 |
) |
|
16 |
|
|
2,680 |
|
Total other income |
|
11,900 |
|
|
12,571 |
|
|
29,685 |
|
|
20,333 |
|
Income before income
tax expense |
|
10,050 |
|
|
7,959 |
|
|
24,124 |
|
|
12,388 |
|
Income tax expense |
|
3,642 |
|
|
99 |
|
|
9,028 |
|
|
152 |
|
Net income |
|
$ |
6,408 |
|
|
$ |
7,860 |
|
|
$ |
15,096 |
|
|
$ |
12,236 |
|
Earnings per common
share (Note 1): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.29 |
|
|
$ |
0.36 |
|
|
$ |
0.68 |
|
|
$ |
0.55 |
|
Diluted |
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.68 |
|
|
$ |
0.55 |
|
Weighted-average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
21,866 |
|
|
21,875 |
|
|
21,961 |
|
|
21,895 |
|
Diluted |
|
21,880 |
|
|
22,187 |
|
|
21,981 |
|
|
22,204 |
|
Cash
dividends declared per common share outstanding: |
|
$ |
0.25 |
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
— |
|
TABLE 3 |
Advanced Emissions Solutions, Inc. and
SubsidiariesCondensed Consolidated Statements of Cash
Flows(Unaudited) |
|
|
Six Months Ended June 30, |
(in
thousands) |
|
2017 |
|
2016 |
Cash flows from
operating activities |
|
|
|
|
Net income |
|
$ |
15,096 |
|
|
$ |
12,236 |
|
Adjustments to
reconcile net income to net cash used in operating activities: |
|
|
|
|
Depreciation and amortization |
|
600 |
|
|
454 |
|
Debt
prepayment penalty and amortization of debt issuance costs |
|
73 |
|
|
1,380 |
|
Impairment of property, equipment, and inventory |
|
— |
|
|
517 |
|
Stock-based compensation expense |
|
1,173 |
|
|
1,543 |
|
Earnings
from equity method investments |
|
(23,969 |
) |
|
(19,331 |
) |
Gain on
sale of equity method investment |
|
— |
|
|
(2,078 |
) |
Gain on
settlement of note payable and licensed technology |
|
— |
|
|
(1,019 |
) |
Other
non-cash items, net |
|
436 |
|
|
34 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
Receivables |
|
6,690 |
|
|
(627 |
) |
Related
party receivables |
|
68 |
|
|
1,473 |
|
Prepaid
expenses and other assets |
|
(453 |
) |
|
806 |
|
Costs
incurred on uncompleted contracts |
|
25,634 |
|
|
17,201 |
|
Deferred
tax asset, net |
|
8,106 |
|
|
— |
|
Other
long-term assets |
|
(767 |
) |
|
(2,630 |
) |
Accounts
payable |
|
(303 |
) |
|
(2,910 |
) |
Accrued
payroll and related liabilities |
|
(987 |
) |
|
(1,596 |
) |
Other
current liabilities |
|
(1,227 |
) |
|
(101 |
) |
Billings
on uncompleted contracts |
|
(28,671 |
) |
|
(20,910 |
) |
Other
long-term liabilities |
|
164 |
|
|
(1,954 |
) |
Legal
settlements and accruals |
|
(10,685 |
) |
|
2,767 |
|
Distributions from equity method investees, return on
investment |
|
2,875 |
|
|
5,900 |
|
Net cash
used in operating activities |
|
(6,147 |
) |
|
(8,845 |
) |
Cash flows from
investing activities |
|
|
|
|
Distributions from equity method investees in excess of cumulative
earnings |
|
22,313 |
|
|
14,875 |
|
Maturity
of investment securities, restricted |
|
— |
|
|
336 |
|
Acquisition of property and equipment, net |
|
(247 |
) |
|
(111 |
) |
Contributions to equity method investees |
|
— |
|
|
(223 |
) |
Proceeds
from sale of equity method investment |
|
— |
|
|
1,773 |
|
Net cash
provided by investing activities |
|
22,066 |
|
|
16,650 |
|
Cash flows from
financing activities |
|
|
|
|
Borrowings on Line of Credit |
|
808 |
|
|
— |
|
Repayments on Line of Credit |
|
(808 |
) |
|
— |
|
Repayments on short-term borrowings and notes payable, related
party |
|
— |
|
|
(14,496 |
) |
Short-term borrowing loan costs and debt prepayment penalty |
|
— |
|
|
(807 |
) |
Repurchase of common shares to satisfy tax withholdings |
|
(517 |
) |
|
(85 |
) |
Repurchase of common shares |
|
(12,973 |
) |
|
— |
|
Net cash
used in financing activities |
|
(13,490 |
) |
|
(15,388 |
) |
Increase
(decrease) in Cash and Cash Equivalents and Restricted Cash |
|
2,429 |
|
|
(7,583 |
) |
Cash and Cash
Equivalents and Restricted Cash, beginning of period |
|
26,944 |
|
|
20,973 |
|
Cash and Cash
Equivalents and Restricted Cash, end of period |
|
$ |
29,373 |
|
|
$ |
13,390 |
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
1,791 |
|
|
$ |
1,436 |
|
Cash paid
(refunded) for income taxes |
|
$ |
839 |
|
|
$ |
(72 |
) |
Supplemental disclosure
of non-cash investing and financing activities: |
|
|
|
|
Stock
award reclassification (liability to equity) |
|
$ |
— |
|
|
$ |
899 |
|
Settlement of RCM6 note payable |
|
$ |
— |
|
|
$ |
13,234 |
|
Non-cash
reduction of equity method investment |
|
$ |
— |
|
|
$ |
11,156 |
|
Dividends
payable |
|
$ |
5,268 |
|
|
$ |
— |
|
Investor Contact:
Alpha IR Group
Chris Hodges or Ryan Coleman
312-445-2870
ADES@alpha-ir.com
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